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| | Praemium Limited | | Software and Services | Company Update | | Slower 2Q inflows, but earnings remain on track |
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| | PPS-ASX| Price A$0.79 | Market Cap A$398.6M | | BUYUnchanged | | PRICE TARGET A$1.12 Unchanged |
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| | Investment Recommendation | PPS has delivered 2Q23 net inflows of $357m (1Q23: $659m), down 46% on 1Q23, while platform FUA for the1H23period has increased to $20.9bn (FY22: $19.5bn). We note positive market movement of $580m for the quarter represented ~2.9% of the value of 1Q23 FUA of $20bn and 2.2% for the1H23period on FY22 FUA of $19.5bn. From an earnings perspective,1H23FUA of $20.9bn is marginally ahead of CGe for $20.7bn, coupled with a timely and 'clean' completion of the Transitional Services Agreement (TSA) with Morningstar as part of the sale of the International Business, which has resulted in CGe for FY23E EBITDA (u) remaining unchanged at $22.5m. |
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| | December 2022 quarterly update | 2Q23 FUA increased to $20.9bn (FY22: $19.5bn; 1Q23: $20bn), driven by net inflows of $357m, down 45% on 1Q23: $659m, while market movement added $580m, against a negative $159m impact in 1Q23. We note gross inflows for the period we $1.2bn (1Q23: $1.6bn) and a more modest decline of 20% compared to the 45% decline in net inflows; however, we believe a portion of platform outflows for the period will reflect some temporary 'parking' of funds off platform by investors into the Christmas period, which comes back onto platform at some stage near-term. As stated from an earnings perspective, PPS have delivered1H23platform FUA of $20.9bn, against CGe for $20.7bn, while a timely and clean termination of the TSA with Morningstar and closing of the Shenzhen office should ensure associated costs incurred by PPS have been at the lower end of any initial expectations. We note the individual contributions of PPS two platforms for the period as follows: - Praemium SMA 2Q23 net inflows of $225m (1H23:$670m, down 50% on pcp), and1H23FUA of $9bn, FY22:$8.1bn, up 11%; and
- Powerwrap 2Q23 net inflows of $132m (1H23:$346m, down 59% on pcp), and1H23FUA of $12bn, FY22: $11.4bn, up 5%.
We note cash management account holdings declined as a percentage of FUA, but moved down only marginally in absolute terms. For the period cash balances were as follows: - Praemium SMA cash balance of $619m (1Q23: $673m) and 6.9% of FUA; and
- Powerwrap cash balance of $769m (1Q23: $833m) and 6.4% of FUA.
We note during the 2Q23 period PPS commenced lifting its cash margin on Praemium SMA platform cash balances to a targeted 130bps, from an historical margin of ~65bps previously. Cash balances asat 1H23remain within historical averages of ~7% of platform FUA, and revenues margins should fully benefit in2H23from the lift cash margins. We note VMASS FUA increased to $21.8bn, up 1.9% for the quarter and 3.8% for the1H23period, and continues to deliver positive quarterly FUA growth and recurring revenues. No change to EBITDA forecasts With1H23FUA of $20.9bn (CGe: $20.7bn) and cost containment evident in commentary on the TSA termination and Shenzhen closing we are comfortable with our FY23 EBITDA forecast for $22.5m and FY24 EBITDA of $24.6m, which may emerge as conservative if PPS can maximise the cash margin uplift on the Praemium SMA. Valuation and recommendation We retain a BUY recommendation and target price of $1.12, which represents upside of 43% to last close. |
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| | Warren Jeffries | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected]| +61.3.8688.9108 |
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| | Click on title or here for full note |
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